Is Alcoa’s Stock a Buy Now?

With shares of Alcoa Inc. (NYSE:AA) trading at around $9.15, is AA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Alcoa reported earnings, but the results didn’t give any reason to be more bullish or bearish than yesterday. EPS was in-line with estimates at $0.06. Revenue slightly beat estimates, coming in at $5.90. The consensus was for $5.60 billion. As far as guidance goes, there was an emphasis on increased global demand for aluminum. However, the majority of that demand is coming from China. As expected, Alcoa is seeing weak demand in Europe. Alcoa feels that the aerospace business should be a top performer in 2013, but there are concerns about potential cuts in defense spending. Overall, there were no real surprises for Alcoa, which should be looked at as a positive, considering analysts everywhere are calling for a weak earnings season. At the same time, Alcoa might have set the bar too high. Whatever the case may be, for companies with poor results, expect fiscal cliff and Hurricane Sandy excuses.

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Let’s take a look at some more important numbers.

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for Alcoa is strong, but the balance sheet needs to be improved.

Debt-To-Equity

Cash

Long-Term Debt

AA

0.57

$1.43 Billion

$9.52 Billion

ACH

1.50

$1.81 Billion

$6.36 Billion

BA

1.46

$11.17 Billion

$11.19 Billion

 

T = Technicals on the Stock Chart Are Mixed

Over the past three years, Alcoa has performed poorly. The same can be said for competitor Aluminum Corporation of China Limited (NYSE:ACH). However, Aluminum Corporation of China Limited offered a solid return over the past year whereas Alcoa did not. Boeing (NYSE:BA) isn’t a direct competitor, but both companies are affected if defense spending is cut. Boeing has performed well over the past three years.

1 Month

Year-To-Date

1 Year

3 Year

AA

7.29%

5.07%

-1.94%

-44.72%

ACH

12.09%

4.28%

10.79%

-61.56%

BA

2.42%

1.45%

5.05%

33.46%

 

At $9.15, Alcoa is currently trading above all its averages.

50-Day SMA

8.57

100-Day SMA

8.75

200-Day SMA

8.87

 

E = Earnings Have Been Improving

Alcoa still isn’t back to 2007 levels when it comes to revenue and EPS, but the annual trend has been in the right direction since 2009.

2007

2008

2009

2010

2011

Revenue ($)in billions

29.28

26.90

18.44

21.01

24.95

Diluted EPS ($)

2.94

-0.10

-1.23

0.24

0.55

 

We already know that Q4 revenue came in a $5.90 billion, and that EPS came in at $0.06. The revenue was a decrease YoY, and the EPS was an improvement YoY. For Q3 YoY, we saw a decrease in both revenue and earnings.  

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

6.42

5.99

6.01

5.96

5.83

Diluted EPS ($)

0.15

-0.15

0.09

0.00

-0.13

T = Trends Might Support the Industry

We don’t know if trends support the industry yet. You would essentially have to weigh the importance of strong demand coming out of China versus the importance of weak demand coming out of Europe.

Conclusion

Alcoa is still miles away from reaching its former highs. Global demand simply hasn’t been as strong as it was in the past. To think global demand would suddenly spike would be overly optimistic. Alcoa does yield 1.30 percent, but that shouldn’t act as a reason to invest. Alcoa will hold its own during these unpredictable times, but this doesn’t look like an ideal entry point.

Alcoa is a WAIT AND SEE.

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